EI Glossary
Assets- items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (opposed to liabilities). Asset Classes - types of assets categorized into classes. These primarily include bonds, stocks, shares and private equities, real estate, commodities, cash equivalents, hedge funds, etc. Active/Passive Investment - Active Investment requires direct and regular intervention and 'tweaking' in the investment process by Fund Managers and invertors, for example by continual engagement and iteration. Passive investment means following and grouping in certain pre-determined or externally determined funds or investemnt portfolios Beneficiaries - technically, 'the person for whose benefit the property is held in trust' but more broadly, they are anyone who benefits from university services and who potentially benefit. Endowment funds- Bespoke Funds - these are funds that are regulated and predetermined or heavily managed so as to specifically cater for types of investor needs, and may strongly screen in or out certain types of companies or sectors. Includes tracker and thematic funds. Bonds - A certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. Thus universities tend to buy bonds issued from the government which guarantee a fixed return year on year in the form of interest. Bundled/Unbundled Financial Management - Financial management can include two types of tasks: 'Financial' and 'Extra Fiancial' (e.g.accountability, responsibility, sustainability). Bundled Management implies that these tasks are done in unison by one Fund manager or company or a single group of Fund Managers. Unbundled management immplies that the decisions of whether to purchase and sell and retain for financial short-term reasons are done seperately from the process of engagement with the companies themselves about their behaviour. Blue Chip Funds - these are funds that have a proven track record and are 'guaranteed' to produce steady, predictable returns for investment Charitable Status - Universities in the UK have 'charitable status', and thus they are obligated to fulfill certain types of financial responsibilities. They are determined by Charity Regulators via the Charities Commission. Charities have to fulfill their Fiduciary responsibility and trustees are legally responsible for the fufillment of them. Community investing - addresses the financial needs of low income communities by providing capital for affordable housing, small business development, and non-profit development. Community investments can be made through community development banks, loan funds, and credit unions and include loans, CDs, checking, savings, and money market accounts. See the Community Investment Centre Co-option - the process of hijacking a minority group's agenda because it fits in with an overall or dominant groups agenda or concern. The dominant group may champion this new agenda as if it were its own, but will usually merely allow the minority group minimal space and support so as to then claim credit if the agenda is successful and beneficial to the dominant group, while allowing it the option to condemn and distance itself from the agenda if it turns out to be unsuccessful. Corporate Social Responisbility (CSR) - the idea that Corporations have an intrinsic duty to take responisbility for the health and wellfare and development of their emploees and stakeholders. Deradicalization - the process of manipulation of radical agenda's, usually by a dominant group with vested interests, in order to subvert and accommodate new ideologies while essentially maintaining the 'status quo' or 'business as usual'. Classic results of deradicalization will be co-option, greenwash, or rhetorical demagoguery. Derivatives - money that is 'derived' from companies in various ways and usually returned to shareholders, which includes profits, dividends and interest Eco efficiency - the ability of organizations to make savings and increase profit margins by becoming more 'sustainable' or ecological: e.g. costs savings from increased energy efficiency. Eco effectiveness - the ability for organisations to become more profitable and effective by investing in and improving human and natural capital: e.g. regenerating economically productive ecosystems or investing in health and safety training Environmental, Social and Governance (ESG) Issues - The Enhanced Analytics Initiative defines ESG issues as having one or more of the following features: - the focus of public concern - not easily quantifiable, thus qualitiative in nature (e.g. intellectual capital and governance) - reflect externalities - affected by increasing regulation (e.g carbon emissions) - arise through a companY's supply chain (e.g. labour issues in factories) ‘ethical and socially responsible investment principles’ (ESRIP) Externalities - costs and benefits not generally accounted for by markets and quantifiable financial mechanisms Engagement - the process of interacting with organizations and businesses to increase democracy and encourage behavioural change. Ethical Criteria - a set of attributable and assessable benchmarks that are put in place to indicate that an organization is investing ethically. Equities - the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc. Thus universities' total business value and property and capital are equities. Equities tend to increase in value (e.g. property) if well amnaged, but they cost money to manage adn maintain. can invest in equities Feel Good Factor- the warm (extra-financial) feeling of investing ethically and being seen to be 'good'. Financial Duties/ Extra-Financial Duties - Financial Duties tend to be dominant for investors and Financial Managers. Public Companies, for example, are legally required to maximize the value of shares. Fiduciary - (person) a person to whom property or power is entrusted for the benefit of another. Thus Trustees 'owe' fiduciary duties to 'beneficiaries' under the trust. Fiduciary Responsibility/Duty - duties that common law jurisdictions impose upon a person who undertakes to exrecise some discretionary power in th einterests of another person in trust' (Freshfields) Fiduciary Duty should not be confused with 'legal duty' It is arguable that, since there is flexibility in the definition of these duties, that these duties need to account for the needs fo the main group of beneficiaries- the students. Fiduciary duty has been, apparantly, redefined to include the duty to account fo gevernance, social and environmental issues. See Social Funds.com moreover in the Freshfield's Report it states that "There is no duty to 'maximize' the return of individual investments, but instead a duty to implement an overall investment strategy that is rational and appropriate to the fund. Fiduciary duties include those to a) act for proper purpose, including 1.carry out the terms of the trust 2.act in the interests of the beneficiaries as a whole b) duty to act prudently 1.consider the suitability of investments 2. Apply special knowledge and skills 3. Act reasonably Fiduciary duties evolve over time according to changes in social norms and the values of society and, to a degree, technological and market changes. Governance/Governance Issues - the internal processes that allow an organisation or institution to function by allocating tasks and organising roles. Governance issues include remuneration, leave, equal opportunities, Greenwash - the process of 'cosmetic surgery' to make an organization look and sound good, or conform to new rules and regulations, while in reality continuing with unethical or unsustainable practices. Human Capital - the (market?) value of people with regard to their attributes and skills Ingression and Introjection of Values - introjection is a psychoanalytic term that indicates the internalization of external features and phenomenon. Introjection and ingression of values implies the building-in, incorporation and accommodation of ethical values into a system. Investment Decisions - a collective term for the activities associated with the selection, retention and realization of investments and extends to the provision and receipt of investment advice. investment management-is the process of deciding where and how to invest funds, while considering the overall aims and strategy of the investors. asset allocation, portfolio construction and stock-picking or bond-picking ‘integrated analysis’ approach, whereby screening and shareholder engagement are combined for maximum impact on the ESG performance of selected companies. Investment universe - an expression of the size of total investment possibilities open to an organization. The more stringent the ethical demands, the more limited the universe will tend to become. Investment Portfolios - the break-down or 'inventory' of an investor that states what kind of investments are made in what ways. Asset classes, their weighting and relative financial bias are all aspects of an investment portfolio. Locality Weighting - the dominance of investment in a certain geographic area, for example national or global investments, continental or regional. Liabilities - the opposite of an asset because it costs money to maintain ownership of it (e.g. through high maintenance or use costs) Market Alien Values- ethics, morality, sustainability, cultural integrity, community modern portfolio theory in investment -“management, in which portfolios of investments are selected based on their overall risk-reward characteristics rather than individual securities being selected on the basis of their individual risks and returns. Selecting an appropriately diversified portfolio is a crucial part of effective portfolio management. This is manifested in the balance that is sought to be struck between different types ofassets, such as equities, bonds and cash, and different geographic spreads, industries or sectors.” Thus any intervention, like EI, that might limit the scope of diversity for investment portfolios are condemned by modern portfolio theory as implying an increased risk and thus imbalanced, inappropriate and less effective in achieving high and stable returns. This theory, however, is based on the assumption that it is 'appropriate' to invest in any and every sector only because it will increase 'diversity', regardless of the risk involved in investing in those particular sectors. Mutual funds-When an individual or a company invests capital in a mutual fund, this capital is pooled with all other monies received from individuals or companies. This pool of money is then invested by fund managers, who will choose various financial products they believe will help achieve the fund’s financial objectives.25 In return for this investment, the investor receives shares in the mutual fund and becomes a shareholder. Mutual funds are generally open-end investment companies that buy back or redeem their shares at current net asset value. Most mutual funds continuously offer new shares to accommodate new investors. Natural capital - the value of ecological and environmental resources and services Nested Funds - funds that are inherently protected or exclusive or exist within certain layers or rules and regulations because they are held by particular types of trustees. They may guarantee minimum levels of risk or minimum levels of return. OSCR -The Office of Scottish Charities Regulation which oversees the fulfillment of Charities Law, especially financial law: http://www.oscr.org.uk/ Pooled investment- include mutual funds. A range of other pooled investment vehicles is available in the UK, including open-ended investment companies and ‘investment trusts’. These are not operated via a trust structure in the legal sense but as companies. Public Companies/Limited Companies - Public Companies issues stock to the general public and thus ownership of the company is non-exclusive and its value tends to be determined by the interaction of supply and demand for its shares. Limited Companies, on the other hand, are owned by an individual or specific individuals. Owners and managers of the company have the power to influence the share price directly by making ownership of the company's shares available to specific individuals for specific reasons. Pooled Fund/Pooling - the combination of individual investments into a singular pool (e.g. bespoke and thematic funds) indicating that they may have the same conditions and aims Rhetorical Demagoguery- rhetorical practice can apply to the deliberate dissemination of misinformation. Demagoguery is the practice of lying to citizens and stakeholders to gain their support long enough to allow the demagogue the space to consolidate power or destroy competition. Thus rhetorical demagoguery is associated to greenwash, where students are manipulated into believing falsehoods or the wrong kinds of objectives as important or desirable. Risk - the likelihood of failure to achieve predicted and required returns from investment. Higher rates of risk are sometimes associated with higher rates of returns. Risk Management - Ethical Investment is potentially more risky when it comes to returns from investemnt. Under Accounting and Reporting by Charities - Statement of Recommended Practice (SORP) trustees are required to make a statement confirming that:"..the major risks to which the charity is exposed, as identified by the trustees, have been reviewed and systems have been established to manage those risks." There are four basic strategies that can be applied to an identified risk: 1) transferring the financial consequences to third parties or sharing it (eg insurance, outsourcing); 2) avoiding the activity giving rise to the risk completely (eg a potential grant or contract not taken up); 3) management or mitigation of risk; or 4) it can be accepted (eg assessed as an inherent risk that cannot be avoided if the activity is to continue). Investment risk falls into different categories: 1) Governance risks – eg inappropriate organisational structure, difficulties recruiting trustees with relevant skills, conflict of interest; 2) Operational risks- eg service quality and development, contract pricing, employment issues; health and safety issues; fraud and misappropriation; 3) Financial risks- eg accuracy and timeliness of financial information, adequacy of reserves and cash flow, diversity of income sources, investment management; 4) External risks- eg public perception and adverse publicity, demographic changes, government policy; 5) Compliance with law and regulation- eg breach of trust law, employment law, and regulatory requirements of particular activities such as fund-raising or the running of care facilities. Screening - the process of including (positive screening) or excluding (negative screening) certain types of companies or sectors from an investment universe. Sin stocks - investments that are universally recognized as problematic or inherently unethical, e.g. tobacco, arms. Investment by universities in sin stocks thus provides massive leverage for a campaign to encourage change. Short Termism - the problem of myopia, or the inability to take the needs of the future adequately into account. Financial markets traditionally operate on a 3-5 year term , implying the need to maximise returns within that time frame. Shareholders - One that owns or holds a share or shares of stock; a stockholder. Also called shareowner. Short termism - is explained by a) Competition: competitive pressures for immediate returns to investment force profit maximisation in the short term b) Discounting: future value, returns, costs and benefits are 'worth' less to organisations than current ones because the future is uncertain, intangible and need to account for inflation, and they are thus discounted at a rate that tries to account for this by equating the future value to the current value. 'A bird in the hand is worth two in the bush' SOCIALLY RESPONSIBLE INVESTMENT(sri) Stakeholders - One who has an interest in the performance and operation of an organization. University stakeholders include trustees, alumni, students, staff and indirect employees. statement of investment policy principles (SIP)- Tilting- bias that an investment fund can have for certain types of investment. E.g. investments can be tilted towards investment in renewables, community investments, etc. This is a more thorough and comprehesive type of positive and negative screening. Time Horizons - Investment decision-making is also concerned with varying time horizons depending upon the investment involved. Pension fund investments in particular are intended to yield returns at some considerable distance into the future. It is therefore necessary when assessing investment decision making against legal standards to have regard to the expected long-term performance of investments where the fund involved demands a return on investment over an extended horizon Thematic Fund - a fund that is managed and developed to align with certain types of particular values. Common 'Themes' are Climate Change Funds, Utility Funds, banking funds. Tracker Fund - these types of funds track certain trends defined by the investor to give them more control over the investment. It is rel Transvaluation of values - the substitution of certain types of values within a system for others. Systems evolve, adapt and develop by continually developing their guiding principles and ideologies a trust - fund is insulated from the sponsoring employer, preventing the assets of the fund being made available to creditors if the sponsoring institutional defaults on its debts. In the pension context, a trust is thus fundamentally a means of protecting beneficiaries, with the trustee in the role of independent custodian .As with occupational pensions, a trust structure insulates the assets of the fund from the entity that manages them. There are also certain tax benefits associated with the trust structure. unit trusts- Mutual funds are known as ‘unit trusts’ in the UK. VALUE-DRIVEN AND VALUES-DRIVEN INVESTMENT-ESG considerations are capable of affecting investment decision-making in two distinct ways: they may affect the financial value to be ascribed to an investment as part of the decision-making process and they may be relevant to the objectives that investment decision-makers pursue. Value- following the correct process Value Neutral - a decision or investment which by its nature tends to be amoral (i.e. outside of morality). Bonds and equities are arguably value neutral because they are very traditional and have limited direct impacts. Vested Interests - indicates reasons that would prevent certain types of change because, for example, 'turkeys don't vote for Christmas'. Volatility - a measure of changeability and thus 'uncertainty' of a fund or share price, sometimes given as a percentage change in value over time. Weighting - the amount of weight or relative importance placed on a certain type of investment for ethical or financial reasons, which takes into account quantifiable and unquantifiable importance.